Continuing with my earlier post on auditing back offices…. The ICAI guidance address the traditional risks that impact a manufacturing company i.e. revenue, procurement, payroll, fixed assets. However, when it comes to captive BPO the overall focus on these is very low because in the bigger scheme of things revenue of the entity is not important, procurement and fixed asset costs are not material when you compare it st with the bigger global entity being serviced from India.
Payroll from my point of view still remains an important component which requires detailed oversight almost annually. It is normally over 65% of cost of the captive unit, I agree that this may still not be material financially. But having adequate controls in this area is essential to ensure the operations are being run effectively.
I think most of time when auditors look at payroll they are concerned with accuracy of processing. But in the captive operations looking at incentives programs and hiring practices is crucial as people are the most important part of a captive and a lack of controls in this area could impact how the captive delivers.
For the other areas in payroll, I have developed data analysis tools to automate majority of the payroll testing. Will explore this in the next post.